General Mills earnings sour as yogurt disappoints again

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Dive Brief:

General Mills said net sales fell 5.2% to $3.79 billion in its third quarter, missing Wall Street's forecast of $3.82 billion, according to Reuters.

Estimated net income attributable to the cereal, soup and yogurt maker was $357.8 million, or 61 cents per share in the quarter. It was $361.7 million, or 59 cents per share, in the same quarter a year ago. Excluding one-time items, the company earned 72 cents per share, beating the average analyst expectation by a cent.

General Mills said third-quarter net sales for its North America Retail segment totaled $2.5 billion, down 7% from the prior year. The drop was led by double-digit declines in the U.S. Meals & Baking division — including Pillsbury, Old El Paso and Annie's brands —and its U.S. Yogurt operating unit. Organic net sales declined 8%.

Dive Insight:

General Mills, the maker of Chex, Nature Valley bars and Wheaties, has struggled along with other food giants as consumers shift toward products perceived as healthier and fresher and away from packaged products like cereal. The change has hit General Mills' bottom line hard: The most recent quarter was the company's seventh straight decline in sales, according to Reuters.

For the company, the biggest impact has been in yogurt — about 13% of its sales — where Chobani overtook the company's Yoplait, the segment's long-established leader, to become the U.S.'s largest brand in the segment last year. General Mills needs the segment to be fixed to help reverse the drop in sales. Last year, it committed to overhauling 60% of the business to better align with consumer trends by adding new Greek varieties, flavors and organic options. But after posting a double-digit drop in the latest quarter, those initiatives are either still in their infancy, or the changes so far have not resonated with consumers. It could take several quarters before those efforts have a meaningful impact sales.

In order to remain competitive, the 151-year old Minnesota company has rapidly expanded into new growth areas popular with consumers, including the acquisition of organic foods maker Annie's in 2014. It's also invested in probiotic-startup Farmhouse Culture;Rhythm Superfoods, known for its kale, beet and broccoli chips, and D’s Naturals, a maker of low sugar plant-based No Cow protein bars and low-sugar, protein-infused nut butters.

General Mills should continue investing in alternative products craved by the consumer, but it can't lose sight of the fact that its current roster of products are the key to its future, at least in the near term. For the food manufacturer to win back customers it should keep overhauling its roster of products — working to show the public that even though it's a $35 billion business it can also be healthy and compete with the trendy startups.